Addressing threats to health care's core values, especially those stemming from concentration and abuse of power. Advocating for accountability, integrity, transparency, honesty and ethics in leadership and governance of health care.

Wednesday, February 13, 2013

The old saying is that nothing is certain except death and taxes. In health care, the other near certainty seems to be that compensation for health care leaders is big and always getting bigger.

Over the past few weeks several reports about the compensation of top executives of US non-profit hospitals and hospital systems have appeared. So it is time to do our latest round-up of incessantly buoyant hospital executive compensation, and argumentative hot air that seems to fuel it. I will first summarize the latest cases in alphabetical order by state, and then examine some common justifications for the seemingly anti gravitational nature of executive compensation in this part of health care.

Arizona

On AZCentral.com was an article about the CEO of a single relatively small public hospital system:

The leaders of Maricopa County’s public health-care system agreed to
raise chief executive Betsey Bayless’ pay by 33 percent, bringing her
salary to $500,000.

That may not seem like a lot of money as executive compensation goes, but consider the context:

The Maricopa Integrated Health System is a public hospital system that
provides care for the Valley’s poor and uninsured. It is funded by
federal and state health-care dollars and a special county levy paid by
all county property-tax payers.

MIHS budgeted $3.5 million for
market adjustments and merit raises for its employees in fiscal 2013.
Bayless’ salary increase alone will consume one-quarter of the $500,000
the board had allocated this fiscal year to bring all employees’ pay in
line with similar positions elsewhere.

The health-care system’s
rank-and-file employees have received annual merit-based salary
increases of no more than 2.9 percent since fiscal 2008.

Nonetheless, the CEO did not exactly feel rich:

Bayless said she did not request the raise and was not expecting it. She
said she believes MIHS employees will understand that her salary has
been comparatively low and that her replacement likely will be brought
in at an even higher salary.

She justified her pay by comparing it to what she thought the market would bear.

'Any salary information will show
you that my salary is always the lowest of any (hospital) CEO currently
in the entire state, even the little-bitty hospitals,' Bayless said. 'On
any measure, 375 (thousand dollars) is below market. So, do I feel
undercompensated? I don’t know. But on any measure, it always comes in
below market.'

Members of the hospital system's board also justified the pay on the grounds that it was at the market rate:

[Board Members Mary] Harden and [Terence] McMahon said they voted for the pay raise because a national
search firm hired to find Bayless’ replacement set $500,000 as a minimum
competitive salary for qualified candidates.

Another board member also noted how hard CEO Bayless works:

'The lady works 70-plus hours a week. She’s on call 24/7. So, I think
the job warrants it. She works very, very hard,' Dewane said.

I am sure health care professionals who also work long hours, and are frequently on call, but unlike managers, have to make decisions with real life and death consequences would understand, or not.

California

In California a report focused in contrast on the bigger hospitals and hospital systems. California Healthcare News reported on the best compensated hospital executives in the state. In general,

More than one in five non-profit hospital chief executive officers in California
received compensation totaling $1 million or more in 2010, according to a
new pay survey by Payers & Providers.

Altogether, 32 CEOs of the 154 surveyed received pay packages that ventured into
the seven figures. That compares to 19 CEOs who received seven-figure
pay packages in the only prior survey Payers & Providers conducted. That survey was published in June 2010, and relied primarily on data from 2007 and 2008.

Some specifics about the best paid executives:

Kaiser Permanente's George Halvorson is the most highly-compensated hospital system executive in California, receiving $7.74 million in 2010. That included more than $6 million in additional compensation. Halvorson is retiring as Kaiser's CEO in June.

Thomas Priselac, the chief executive officer of Cedars-Sinai Medical Center in Los Angeles, was the highest-paid standalone hospital CEO, earning $2.77 million in 2010. That included additional compensation of $1.6 million.

The article provided the justification for Priselac's seven-figure compensation:

According to an email response from Cedars-Sinai spokesperson Duke Helfand, Priselac's compensation 'reflects the top-tier clinical, research and educational performance the medical center consistently has delivered in his 19 years of leadership.'

He did not offer how this performance was measured, how it compared to that of any other hospital, or whether anyone other than the CEO might have been responsible for that performance.

The survey results included the best compensated CEO of a health-district

Michael Covert, the CEO of the two hospital Palomar-Pomerado Health system in San Diego County, was the highest-paid district hospital CEO, earning $1.09 million in 2010. He was among two district hospital CEOs to earn seven-figure compensation.

The survey results also included the best compensated CEO for academic medical centers run by the (state supported) University of California:

David T. Feinberg, M.D., is by far the highest-paid CEO among those who oversee the five research hospitals operated by the University of California. Feinberg, who runs Ronald Reagan UCLA Medical Center, earned $1.33 million in 2010 – the only seven-figure pay package among that cohort of CEOs, and nearly $450,000 more than the second-highest earner in that group, Mark Laret of UC San Francisco Medical Center.

The report did not provide any justification for the pay levels, and I could find no further news coverage that was relevant.

Massachusetts

The Fitchburg (MA) Sentinel and Enterprise seemed to be the only media outlet which noted the compensation of hospital executives reported to the state attorney general. It listed compensation of some regional hospital leaders,

Patrick Muldoon, president and CEO of
HealthAlliance Hospital, a member of the UMass Memorial Health Care
system, received a compensation package of $653,868 in 2010, the most
recent year for which compensation data is publicly available.

The HealthAlliance system includes a 135-bed community hospital with services on two campuses in Leominster and Fitchburg.

Over that same period, Daniel P. Moen, former president and CEO
of the 153-bed Heywood Hospital in Gardner, received a compensation
package of $386,126.

Christine Schuster, CEO of Emerson Hospital in Concord, earned a
total compensation package of $669,844. Emerson has 179 beds.

Lahey Clinic chief executive Howard Grant, who oversees a
facility with 317 beds, was paid a total compensation package of
$768,568 in 2010.

The article did not note the justification for the pay of any of these CEOs. I was unable to find any other recent reporting that took advantage of the data supplied to the state Attorney General.

New York

SUNY - Downstate Medical Center

The New York Daily News reported on compensation given to executives at one state supported university medical center:

15 SUNY Downstate Medical Center bigs are raking in $200,000-plus
salaries even as plans move forward to shut down its Long Island College
Hospital campus.

Downstate president Dr. John Williams who’s leading the drive to close the Cobble Hill hospital gets the fattest pay of all.

He’s paid $650,000 a year salary and gets an annual housing allowance of up to $80,000 and the use of a car.

It listed the following compensation information for other executives:

This should be viewed in the context of the medical center's current dire straits:

SUNY Downstate — which has a hospital and medical school in East
Flatbush — is in such bad financial shape it could go broke by March,
SUNY chairman Carl McCall has said.

Of course, despite these financial threats, a "spokesman" defended these payments again as market-based:

[Robert] Bellafioire defended the brigade of big salaries — though the
controller’s audit suggested Downstate should consider cutting the
number of high-paid administrators.

'We have to offer competitive compensation, particularly when we’re up
against any number of the country’s best hospitals and medical schools
just across the bridge and in the metropolitan area,' Bellafiore said.

Rural Hospitals in Upstate New York

On the other hand, the Plattsburgh (NY) Press-Republican reported on the compensation given to hospital executives in rural northern New York state. These included Alice Hyde Medical Center:

John Johnson, president and chief executive officer, was paid $339,539 in 2010. He retired in the fall of 2012.

He was replaced by Douglas DiVello, who is paid $246,682 in salary and benefits.

Then there was CVPH Medical Center in Plattsburgh

Hospital President Stephens Mundy has been at CVPH for 10 years and was
paid $749,563 in salary, bonuses and other compensation in 2010.

His base salary for 2013 is $478,421,...

In addition, there was Elizabethtown Community:

Rodney Boula, president and chief executive officer at ECH, was paid $229,902 in 2010.

Note that later the article explained that this hospital has no more than 25 beds.

However, the reporter was unable to find out the compensation of the CEO of the Adirondack Medical Center in Saranac Lake:

Chandler Ralph, president and chief executive officer for 16 years, is
not employed by the hospital or its umbrella organization, Adirondack
Health.

She is paid through a contract with a management company, Health Tech
Management Services, said Joe Riccio, AMC communications director.

Her salary is a confidential employment contract, 'just like any other vendor that does business' with the hospital, he said.

Because of that, her salary was not available through IRS records. The
Press-Republican pressed Ralph to release her salary, noting that it was
publishing the pay of all other area hospital CEOs, but she refused,
citing confidentiality.

Parenthetically, this seems to be an unusual case of the actual outsourcing of top leadership.

This compensation information again should be considered in the context. These are all relatively small hospitals in a rural area with low costs of living. In addition, these hospitals were facing substantial financial challenges:

Numerous jobs were cut in 2012 at the area’s five hospitals, some the
first substantial layoffs in decades. One hospital recorded an operating
deficit, and at some, programs and services were reduced.

Adirondack Health, parent company of Adirondack Medical Center in
Saranac Lake, and CVPH Medical Center in Plattsburgh, each laid off 17
employees last fall and eliminated vacant positions.

Alice Hyde Medical Center in Malone let 12 people go in September and had closed down more than a dozen vacancies.

Nonetheless, the justifications for these compensation levels included the usual suspects.In an introductory discussion not specific to any hospital, we find:

'The responsibilities of a CEO have exploded in the last four years,'
said William Van Slyke of the Healthcare Association of New York State,
an organization that represents hospitals and health-care systems across
the state.

Similarly,

'Being a hospital CEO, you are ‘all in,’ all the time, every hour. It’s a tremendous responsibility.'

This is the familiar argument about how hard seemingly all hospital CEOs work. As noted above, it is particularly incongruous in a health care setting in which numerous health professionals are also "all in," and these professionals bear the responsibility of making decisions and taking actions that can directly affect patients' health, safety, and even survival.

Following this were the equally familiar arguments that the compensation of CEOs is determined by the market, and so to retain CEOs one must pay at this market rate:

'Being a hospital CEO, especially in the state of New York, is complex
and demanding job. There is an extraordinarily limited pool of
candidates, and that increases their value.'

'I can’t speak for the hospitals in your area,' he told the
Press-Republican, 'but a qualified and successful CEO can go anywhere in
the country and make equal or higher salaries.'

The Press Republican also elicited very similar articles justifying pay for individual hospital CEOs, for example, regarding the CEO of the Alice Hyde Medical Center, here is the "compensation is determined by the market" argument from "Dean Johnston, president of the Board of Trustees, and member of the hospital's Compensation Committee"

'It’s important that the salary is competitive with other institutions
because it’s difficult to attract professional leaders who will improve
the quality of care.'

And from the same person, here is the "CEOs work very hard" argument

'It’s difficult being CEO,' Johnston continued, 'because you’re the head of a complex and multi-faceted institution.'

Very similar arguments were made to justify the compensation of the CEO of CVPH Medical Center.

The Usual Talking Points and Logical Fallacies

So, to summarize, hospital executive compensation, at least such compensation that gets noted in the media, seemingly never has been better. CEOs at even the smallest, most rural, non-profit community hospitals can make well into the six figures. CEOs at public hospitals can make over half a million dollars. CEOs at larger hospitals, even those that are state supported, can make even more, up to millions a year for CEOs of moderate to large non-profit hospital systems. Even hospitals that are facing financial challenges, or that are laying off employees still pay substantial amounts.

In previous posts, we noted that whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, other health care organizations throughout the US, they seem to repeat the same set of talking points. We first listed the talking points here, and then provided additional examples of their use here, here and here. The talking points are:
- we pay what everyone else pays
- CEOs work hard and are brilliant, and so deserve high pay
- high pay is needed to attract and retain competent, if not brilliant people.

None of the examples of these talking points we have seen so far explain
why these apply to CEOs and other top hired managers, but not to other
kinds of employees.

So it should be no surprise that the justifications for the largesse to hospital executives found in the cases above follow the talking points yet again.

We Pay What Everyone Else Pays

Another way to put this is that some market determines CEO pay. We saw versions of this to support the compensation of the CEOs of Maricopa Integrated Health System in Arizona, and SUNY - Downstate Medical Center and Alice Hyde Medical Center in New York.

Note that almost never is this argument supported by data about whether comparisons were actually made to a representative peer group. In any case, as we asserted before, this justification may be a logical fallacy, an appeal to common practice.

CEOs Work Hard and Are Brilliant

This is an especially frequently used talking point. I have yet to see an instance in which any hospital official would omit a CEO was anything other than supremely diligent and totally brilliant. We saw versions of this to support the compensation of the CEOs of Maricopa (AZ), Cedars-Sinai Medical Center in California, the Alice Hyde Medical Center and CVPH Medical Center in New York, and generically to support all New York State hospital CEOs.

As we noted above, this justification is almost never accompanied by any evidence that CEOs work harder or are more brilliant than the numerous health care professionals who actually make it possible for the hospital to operate. I would guess it would be very hard to show that CEOs work longer hours, are under more stress, make more consequential decisions, are smarter or better trained than typical doctors, nurses and other health care professionals. This justification thus appears to be another kind of logical fallacy, an appeal to authority.

High Pay is Needed for Retention

We saw versions of this to support the CEOs of Maricopa, SUNY - Downstate, Alice Hyde, CVPH, and generically again to support all NY hospital CEOs.

Note that this justification is also almost never supported by any evidence. As we noted here, while this argument, probably like the others, comes from the generic business management literature, there is little data in the larger business world to show that CEOs are very mobile, or likely to succeed when transplanted to a new environment. In fact, a recent report looking at the mobility of CEOs worldwide called this a "self-serving myth." (See this summary for a link to it.)

It is too bad that no one ever seems to get the opportunity to challenge these talking points when they are offered as justifications for outlandish executive compensation.

As we have shown again and again, the pay of top health care leaders seems to endlessly increase, without clear justification, regardless of the vicissitudes affecting the organizations they lead, their employees, their patients and society. This suggests that health care organizations, like many other organizations, seem to be run primarily for the benefit of their executives and their cronies, regardless of what happens to anyone else.

As we have frequently said, current policies about paying hired health
care managers leave the managers unaccountable for the effects of their
actions on patients' and the public's health, and worse, fail to deter
and may even encourage ignorance of the health care mission, frankly
mission-hostile behavior, self-interest, conflicts of interest, and
outright corruption. Meanwhile, paying nearly all top managers as if
they were brilliant, while setting much harsher standards for the
employees who actually take care of patients, including health
professionals, demoralizes those on whom patients actually depend for
care.

As we have said endlessly,.... Health care organizations need leaders that uphold the core values of
health care, and focus on and are accountable for the mission, not on
secondary responsibilities that conflict with these values and their
mission, and not on self-enrichment. Leaders ought to be rewarded
reasonably, but not lavishly, for doing what ultimately improves patient
care, or when applicable, good education and good research. On the
other hand, those who authorize, direct and implement bad behavior ought
to suffer negative consequences sufficient to deter future bad
behavior.

If we do not fix the severe problems affecting the leadership and
governance of health care, and do not increase accountability, integrity
and transparency of health care leadership and governance, we will be
as much to blame as the leaders when the system collapses.

14 comments:

Thank you for continuing to bring this excess cmpensation issue to our attention. It seems that there are no parties with the power to stop this. Eventually the system is going to collapse but those making the millions will just go off to a tropical island, leaving the rest of us to try to pick up the pieces!Don't know what to do but I keep bringing up the issue on other sites. Unfortunately, no one seems to want to hear any of this. My posts are either ignored or blown off as irrelevant...

Thank you for this post. This kind of information is too often missing from the public discussion of the "makers and takers."

I am struck by the frequency of the "they work very hard" argument. That seems to be widespread amond the 1%. Well, yes, you work hard. I recall from the Nixon debacle, someone (I suppose I should Google it) pointed out, "We lost sight of the fact that working hard is not the same as getting the job done." Paraphrase, not quote. It also led me to recall the many times in my life when I was putting in 12-14 hour days six or seven days a week, mostly because I was caught up in the work which I loved doing, even though it was sometimes exhausting.

I do think that the amount of compensation should be set by a process that is transparent, has input from the community which the hospitals are supposed to serve, is not subject to conflicts of interest, and holds the executives accountable for the effects of their actions on patients' and the public's health and for the extent they uphold or degrade health care professionals' core values.

Another great summary of the ongoing problems we face in the business takeover of medicine.

Our non-profit community hospital CEO is paid over $500,000 annually, not including the compensation package. The unpaid Board of Directors have extreme conflict of interest financially influencing their vote in setting the CEO salary, hence, the upward spiral.

This was well-thought out over a decade ago by the national hospital CEO governing organization as they realized they didn’t need to “justify” their salary increases. Controlling the Board vote, and making sure rising executive market-value compensation comparisons was all they needed to surreptitiously abscond with hospital profits.

What can we do?

Tie any executive hospital salary increase to the average salary increase for other hospital employees. Yeah right! I still firmly believe it is possible to ignite a public fire through the local media (including blogs) forcing Board of Directors to be held accountable. Medical Staffs and organizations must also work hand-in-hand revealing their plan. Nothing will be done if we only write about it.

So some of you should not give up hope, as there are doctors in different parts of the country still putting up a fight.

What an ignorant article. The compensation for executives, as for any job classification, is established by the basic economic principal of supply and demand. If a hospital can find a Qualifies CEO or neurosurgeon to work for $50,000 per year, all the more power to it - however, I would not get my care there.

Given the amount of documentation in the above post, plus in the posts it links to, and in my very long series on excess executive compensation (here: http://hcrenewal.blogspot.com/search/label/executive%20compensation) - just calling the post "ignorant" smacks of the ad hominem.

And since I hardly suggested paying a CEO, or a neurosurgeon, $50K, you also have used a straw man.

I am still waiting for anyone to make an effective argument against my points above that does not involve logical fallacies.

I agree with the article. Yes, as pointed out they probably do work hard but they are also often surrounded by resources that end up carrying much of the day to day load. I still don't think they can compare to a Pulmonologist doing Q2 or Q3 call in an ICU making $350-400,000 a year.

In other industries we see lower base pays with good incentives tied to actual meaningful goals and results. Goals that the CEO can and should influence in a positive way.

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